How Med Spas Maximize Value with an MSO
Maximize a med spa’s value with an MSO
When you opened your med spa, what were your goals for your business? Was it to treat patients and do work you love? To scale a profitable practice? Maybe even to sell your business to private equity?
No matter why you started your med spa, an MSO (Management Services Organization) may be a way to help you reach your goals. Whether you’re a physician who wants to focus your time on patient care or a business owner with a dream of scaling, here are a few ways an MSO can maximize your med spa practice’s value.
MSOs allow for non-physician owners to own a med spa
An MSO can be used to grant ownership of the med spa to non-clinical personnel. Why would a med spa owner consider this? For a growing med spa, it’s difficult to fully focus on maintaining a competitive business while also treating patients. Ideally, you would hire a partner to help sustain the growth, but that often comes with a cost: equity.
An MSO can offer a win-win for your med spa. At the med spa level, you can continue to efficiently treat patients and grow revenue. Meanwhile, the MSO can attract talented people in finance, management, marketing, customer service, and operations to drive business forward.
MSOs are highly scalable
There’s another benefit to bringing business-minded people into your MSO: scaling. A well-run MSO can “service” more than one location’s business and operational needs. Imagine running multiple med spa practices, while staffing, marketing, payroll, and even customer service are operated out of one MSO. It’s a highly efficient way to create value and profitability.
Many of our clients have a single med spa location and wonder what scaling could look like for them. In this example, we look at one med spa’s financials in two different situations. One is under an MSO, and the other is not. The MSO runs operations for three med spa locations, including the one on the chart.
Let’s start with Costs of Goods Sold. Efficiencies come with economies of scale. The med spa without an MSO doesn’t have as much buying power with vendors because they’re buying for a single location instead of three. They pay for clinical costs per procedure, so they aren’t going to see many discounts on the COGS line at 30%. The practice under the MSO with multiple locations can use one vendor for all supplies and gain discounts for a better margin at 28%.
On the fixed expense side, the non-MSO practice is going to have to pay for accounting, marketing, and other business services on its own. On the other hand, the practice under the MSO will pay a monthly management fee. The MSO will provide business services efficiently, as they likely house an accounting and marketing team who serves all three of their med spa locations.
Because an MSO offers opportunities to run a practice more efficiently, there are more opportunities for a practice to grow.
Selling an MSO to a potential buyer
Many owners start their business with an anticipation of an eventual exit. They envision selling their business to a potential buyer. Having an MSO in place before exiting the business can create great value for a sale of a business because it opens the buyer list up to a completely different demographic. Instead of the buyer having to be a clinician, it can now be opened up to Private Equity Groups (PEGs) or family offices looking to invest and get a return on the business.
An MSO can create great value for these buyers if you continue to scale your business. The PEGs typically look for a model that is repeatable to scale quickly. An MSO helps create that “special sauce,” or the specific business and operational model that ensures an organization can continue to grow. The locations under the MSO are going to most likely have the same procedures being done with similar culture, systems, financial reporting, and other operations. Depending on how large your MSO becomes, buyers could look for it to become a platform and continue to grow using your vision of the business.
It helps that the value of the MSO is the one-stop shop concept. Instead of a buyer purchasing six different locations and trying to bring them under one umbrella, the MSO already creates that umbrella for a buyer. This makes it easy for buyers to see value and potential for efficient growth.
Comparing a single location med spa and a multi-location MSO
Need more proof? This chart illustrates the difference in value between a single location med spa and multi-location MSO.
Sometimes you will have to give up equity within the organization to help scale. But, that doesn’t mean you are going to make less than if you owned the organization at 100%. The chart above shows that difference clearly in two scenarios.
In the non-MSO scenario, the owner who keeps one location and does not look to scale would sell and walk away with $536,000. On the other hand, an owner who creates an MSO and brings strong employees into the organization to help scale and open new locations might have to give up some equity. This owner gives up 30% of the organization, but if they scale responsibly with strong financial margins, not only is the value of the organization greater, the owner gains a significant dollar value at the time of sale compared to if they stayed with their one location.
Understand or maximize your med spa’s value with Skytale Group
If you’d like to better understand the current value of your med spa, we’re here to help. Regardless of whether you’d like to scale or simply run your business effectively, we can give you a clear understanding of your business’s value and help you reach your goals.
For med spa owners interested in growth: in order to create a foundation for scaling, consider creating an MSO. Could an MSO maximize the value of your business? How could this model provide you opportunities in the future? Contact us if you’re interested in an introductory conversation or complimentary assessment.